Stewardship vehicles for garden communities

Out-Law Guide | 08 Apr 2022 | 2:40 pm | 7 min. read

Strong stewardship arrangements need to be put in place for garden communities to thrive in the long term.

Project promoters should consider stewardship vehicle options at the outset. These vehicles are likely to be important for managing and maintaining public and private property, operating community facilities and, if appropriate, running utility services within the garden community.

Stewardship vehicles need to be well-funded to function as intended, but if they are set up correctly, they can become self-financing and vital to delivering an environment that is desirable to live and work in. Pinsent Masons has produced a comprehensive guide to stewardship vehicles for garden communities (6-page / 400KB PDF).

Funding models and outline business cases for stewardship vehicles

Early consideration of the role and scale of the stewardship vehicle is vital to its successful financial planning and delivery.

The provision of communal facilities within the garden community will guide the scope of the future stewardship vehicle and shape the financial requirements both in terms of capital costs for the initial construction and the revenue costs for the ongoing maintenance.

A typical new build housing-led scheme would usually involve green infrastructure maintained through a site-specific management company and paid for through service charges, levied on the residents. The ambition of garden communities means there are a potentially wider group of community facilities, in addition to green infrastructure, that would fall under the stewardship vehicle and a requirement for a more creative approach to the sustainable funding of such entities.

The aim at the outset of any stewardship vehicle should be to maintain the communal facilities to standards appropriate for a garden community in a financially self-sustaining manner without reliance on the public purse. This will entail the identification and costing of those facilities earmarked for inclusion within the stewardship vehicle and identification of the corresponding sources of income through which the facilities can be created and maintained.

This data will then inform the financial model and early-stage business case for the stewardship vehicle once the management and administration costs have also been factored. The creation of the business model will not only identify whether the sources of income are capable of covering the annual costs in the long term, but also whether the model runs at a financial deficit in the years whilst the site is getting established and reaching full occupancy. This in turn will guide the thinking around the need for upfront capital grant requirements, developer contributions or other sources of potential injections of capital.

Access to well-maintained communal facilities is part of what sets garden communities apart. The creation of a fully costed business model, with locally tested income streams and administration cost assumptions, should provide evidence of the overall deliverability of the communal facilities and in doing so help demonstrate the deliverability of the overall vision.

Core considerations

To establish, fund and operate a successful stewardship vehicle, thought must be given to some important issues.

This includes the functions of the stewardship vehicle and sources of primary funding – particularly when initial up-front capital expenditure is required to help fund the provision of strategic open space, other public property or private land, community facilities and utility infrastructure. A blend of funding could be obtained from developers and landowners, local authorities and parish councils.

The pros and cons of the various legal structuring options should also be examined. The choice between the various unincorporated and incorporated bodies that could be established depends on the proposed functions, the assets that are being managed, the type of finance arrangements and governance approach being taken to the stewardship vehicle, as well as the tax position. Options include unincorporated bodies such as unincorporated associations, trusts or partnerships and incorporated bodies such as private companies limited by guarantee or by shares, charitable incorporated organisations, community interest companies and registered societies, such as cooperatives or a community benefit society. A bespoke structure can be formulated to blend the appropriate options into the “best fit” for an individual garden community.

Governance is another important consideration. The governance options are informed by the identity and percentage control the “shareholders” of the stewardship vehicle wishes to have and should be tied into the overall project governance. Ideally, the vehicle will be run by representatives from the bodies who have contributed to the primary funding and who retain a stake in the success of the garden community.

It is desirable for the governance arrangements to provide for the involvement of:

  • all of the local community, such as via a parish council or neighbourhood forum;
  • landowners and developers that would otherwise consider management company arrangements; and;
  • the host local authority or authorities, as long-term partners in the project.

To achieve local buy-in, thought should be given to how best to capture the views of existing local communities and future residents. By way of example, a board of a stewardship vehicle might involve an existing or new parish council or neighbourhood forum, a long-term development partner, and a local authority.

Thought must also be given to how regular income may be generated and captured from garden community assets and the best stewardship vehicles for that purpose. More information on this important aspect is set out below.

Income streams for stewardship vehicles

One of the main risks with stewardship vehicles is that they may not have enough income to deal with the responsibilities they wish to take on. In particular, sometimes endowment or start-up funding is sufficient to establish the stewardship vehicle and provide the community facilities and public and private land but not sufficient to deal with all of the operational costs or the refurbishment costs of the capital assets. However, financial models are available to account for various income streams, including those subject to regulatory requirements.

Income might be derived from:

  • Service charge structures;
  • Ongoing Section 106 or CIL contributions;
  • Grants, loans, endowments or bonds;
  • ESCOs or MUSCOs – the income streams from energy service companies (ESCOs) or multi-utility service companies (MUSCOs) can be substantial and the operational management of these can sometimes be wrapped up within the operational management of overall stewardship vehicle, depending on regulatory requirements. More below.
  • Parking revenue – revenue from parking within the garden community may be capable of being recycled back into the stewardship vehicle, depending on how parking is regulated and enforced.
  • Biodiversity net gain habitat revenue – that is, any income from providing land for others in terms of habitat provision for biodiversity net gain. Some garden villages have a surplus of strategic open space and these can be used for biodiversity net gain enhancement, or for sustainable alternative nature green space provision where appropriate, for other third party schemes and generate income accordingly.
  • Sport pitches – revenue from artificial 3G or 4G synthetic sports pitches can be a potential source of income from a popular communal facility. The costs and benefits can be potentially shared when located in proximity to a school.
  • Data trust income – more below.

Data trust income

The installation of electronic communications utility and other infrastructure, such as smart meters in homes and commercial premises, the monitoring of travel mode patterns and preferences via intelligent transport systems and smart ticketing, the use of broadband, data concerning resident, consumer and visitor trends – for example, why customers and visitors visit local centres for retail, leisure, or civic purposes or why they visit parkland or community facilities – provides revenue stream opportunities for landowners, promoters and data collectors within the garden community.

Data gathering and monitoring is valuable and can be structured so that important data protection safeguards are put in place. This can be achieved by establishing a data trust – a legal structure that provides independent stewardship of data.

The data trust will hold, or be able to grant access to, wide, diverse, high quality data sets from multiple sources. The data trust acts as the custodian or steward of that data, in a similar way to other legal structures that are used to look after and make decisions about assets – for example land trusts, stewardship vehicles or community interest companies that steward land on behalf of local communities and other stakeholders.

Data trusts are a vehicle for sharing garden community user data in a way that complies with data protection law and other regulatory requirements arising around the use of data.

The data trust can agree data sharing and data use agreements with those data collecting businesses and organisations wishing to collect and use data gathered from the residents, occupiers and visitors of the garden community, as well as with the data providers who gather the data from the community. These arrangements provide the data trust, and by extension the relevant stewardship vehicle, to share in the revenue the data generates.

ESCOs and MUSCOs integrated with stewardship vehicles

ESCOs or MUSCOs operate to capture a share of the revenue for the owner(s) of the company which would otherwise be wholly received by a utility provider. There are tried and tested models across the UK and we have been involved in setting up and operating many successful examples.

ESCOs and MUSCOs may be set up and operate independently of stewardship vehicles but can equally form part of a valuable income stream for a stewardship vehicle and share many of the same governance structures, avoiding duplication of staffing and operating costs.

The other benefit of ESCOs and MUSCOs being part of a stewardship vehicle is the sustainability benefits they can bring to the garden community. Examples might include the provision of renewable technologies for power generation – such as solar, combined heat and power or air source heat pumps; reduction in water usage and increase in greywater recycling; and improved connectivity leading to carbon footprint reductions.

Given the drive towards ‘net zero’ emissions, these are increasingly important areas of focus.